Worth the company's salt Deccan Herald — September 16, 2002

Branding is new process mantra for Tata Chemicals in turning this commodity entity into a FMCG major, says Russell Foulds

Tata Chemicals Limited (TCL) has been in the business of inorganic chemicals and fertilisers for over 60 years but it is only of late that this Rs-1,500-crore-plus company has ventured to transform itself from a traditional manufacturing company to a very market-oriented one. And the recent relaunch of its well-established Tata Salt coupled with this product hitting top position in the ET Brand Equity Survey as the Most Trusted Brand this year has reinforced the view that Tata Chemicals has turned market-savvy and is on the way to becoming more of a brand than a mere commodity in the near future. Prasad Menon, managing director of the company, told Deccan Herald that manufacturing industries in India have moved from a protected market to a competitive market and in that context understanding customer needs and meeting expectations has to become a clear focus.

The question being asked is whether the runaway success of Tata Salt would prompt the company to turn soda ash and fertilisers also into branded products. "Commodity branding is definitely engaging our attention. Already our cement and urea products are being marketed under the Shudh brand and we are evaluating other options," MrMenon said.

Fertiliser division
In the fertiliser area, TCL's urea plant at Babrala in UP has a capacity of 7.42 lakh tonnes per annum, constituting 12 per cent of the total private sector production and is considered one of the world's most efficient fertiliser manufacturing facilities. The plant is located close to the high consuming northern belt in the Gangetic plain, which constitutes 48 per cent of aggregate domestic demand and accounts for 88 per cent of the company's total urea sales. But with the drought in evidence here, it remains to be seen what effect this would have on future production and sales.

The company is expanding its distribution network of agri-service initiatives called Tata Kisan Kendras that will serve as a platform for brand-building, greater penetration and optimal distribution, and once the sector is deregulated TCL will greatly benefit from this move.

Marketing strategy
Explaining the company's marketing strategy for salt and its two other core products namely soda ash and fertilisers, Mr Menon revealed that the company's salt business has undergone a complete revamp of its marketing and distribution structure.

A dedicated sales team on FMCG lines has been set up to manage the salt business and with the objective of offering an alternative to the price-conscious housewife, a second brand of salt under the name Samundar has been test-marketed and proved successful with commercial launch options under consideration.

He said that in the area of soda ash, Tata Chemicals is aggressively targeting new customers and while strengthening its field-force, efforts are on to render the product globally competitive. The organisation itself is being restructured along key account management practices. However, urea is still a controlled commodity and future marketing strategies would depend on the long-term policy on fertilisers. But he acknowledged that the competition for soda ash is from within the country and also from without. And while the company has launced a programme to make its soda ash globally competitive, TCL will proactively enhance Tata Salt's value proposition and further consolidate its leadership position.

Salt business
Salt is manufactured at the company's integrated Mithapur complex with 3.5 lakh tonnes of vacuum-evaporated salt coming out each year along with 33,000 tonnes of caustic soda and 180 tonnes of bromine and bromine-based compounds. Every month 28 million 1kg packs of Tata Salt are produced at Mithapur.

While TCL's MD is delighted at Tata Salt's numero uno status on the brand list, its vice-president (sales and marketing) Kapil Mehan, is very positive about the outlook for Tata Salt.

According to him, Tata Salt has been a pioneer, a leader for long in this category and always regarded well by the key consumer — the housewife. But as to why this brand is way down at number 25 in south India, Mr Mehan confirmed that the company was aggressively expanding its stockist base there from 220 at the start of this fiscal year to 280 at present.

New distributors are being appointed and it is investing in channel associates. For example, it has organised specialised training programmes on sales, marketing, enterprise management and brand-building for its distributors and their sales force. There are reward and reorganisation programmes. Product availability is being put in place and the company is also undertaking mass media advertisements in the south zone which is expected to increase awareness and brand pull. These ads are of course targeted at that specific audience and in the language of that region. This year will see TCL spend about Rs10crore on advertising between the Tata Salt and Samundar brands.

Mr Mehan noted that Tata Salt leads the way as first mover and leader in the branded iodised salt market. It has a 17-per-cent market share in the branded salt category and among national brands, its share is higher at 38 per cent. The marketing strategy would be to continue expanding reach and availability of the product while improving the market base. It will continue upgrading users of unbranded, unhygienic loose salt and continue to improve product and packaging offerings to the consumer. He affirmed social responsibility and brand commitment and to this end has launched the Desh Ko Arpan programme where 10 paise on each pack of Tata Salt sold in a month would go to CRY.

An average of three crore Tata Salt packs are sold each month. Mr Mehan said advertising for the product largely revolved around the television medium with Doordarshan forming the dominant chunk of its media plan given it still has the highest reach especially in areas like UP, MP and Bihar where vast numbers of consumers are unbranded and loose salt users.

He nevertheless is confident that though the market is competitive with multinationals and Indian firms alike pumping money into messaging the consumer, Tata Salt will continue to lead as long as it reaches out and makes itself available. The company always has a ear to the ground to be in touch with the consumer's needs.

Export market
According to Mr Mehan, Tata Salt is being targeted at the Middle East and Bangladesh as far as exports go and he thinks that today's salt market is very dynamic with the consumer constantly evolving. Market variables keep changing, a retail revolution is slowly descending on us and globalisation has its effects even on a humble product on the kitchen table called salt.

There can be no one formula that any player can stick to - in keeping with changing market needs strategies will also keep on changing.

Financials
Prasad Menon said that operations for TCL during 2001-2002 were affected due to a power plant fire at its Mithapur chemicals complex, which resulted in lower production and turnover during the first quarter. During 2000-2001, there was a one-time profit on sale of investments of Rs 220 crore against nil in the succeeding year. But despite these factors, the profit before tax for 2001-2002 at Rs 200 crore was higher by Rs 14 crore over the previous year. The profit after tax was nevertheless lower over the previous year since the company had to make provision for deferred taxation of Rs 34 crore. But during the first quarter of the current year ended June, 2002 it posted a net profit of Rs 34.01 crore against a net profit of Rs 13.19 crore in the corresponding period of the previous year even as its total income went up to Rs 369.88 crore from Rs 295.17 crore.

During 2001-2002, TCL showed a decline in performance with a marginal fall in sales to Rs 1481.32 crore against Rs 1502.14 crore in the previous year. But that was due to the first at its Mithapur plant. Since then operations have stabilised. The year also saw a substantial reduction in interest costs through a combination of debt reprofiling and debt reduction initiatives.

The current market price of around Rs 55 discounts the latest earnings by roughly 10 times. The company has shown a good dividend yield of around 9 per cent and has Rs 556 crore of investments in its books. Mr Menon denied that the company had plans to enter the branded foods business in a big way and went on to stress the importance of its distributors and supply chain partners. These are vital partners in taking our product to the consumer, he said, adding that with this in perspective, TCL recently conducted customised training programmes to enhance the competencies in its channel partners.

He disclosed that TCL is pursing a number of initiatives to consolidate and drive growth in its core businesses. These initiatives aim to build on the organisation's inherent manufacturing strengths to drive sustainable and profitable growth and become globally competitive. They include restructuring the marketing function, becoming more customer-focused and improving operational efficiencies by aggressively cutting costs and streamlining supply chain management. As part of its quality initiative, TCL has also decided to focus on all activities at the micro-level and create a performance-oriented company.

Quality initiatives
It has therefore adopted the Tata Business Excellence Model (TBEM) which has a holistic approach to improving business processes unlike other quality initiatives. TBEM has helped the management identify cost-cutting, human resources development and developing marketing strategy as three critical areas for overhaul. As part of the cost-optimisation and revenue-enhancement strategy, it has started the Manthan programme to intensify performance improvement across all business divisions. This is expected to make the soda ash business globally competitive.

Analysts maintain that though TCL accounts for around 42 per cent of the country's soda ash capacity at 8.75 lakh tonnes per annum and is one of the largest producers of synthetic soda ash in the world not to forget its prime position as producer of industrial and edible salt with a domestic market share of close to 40 per cent, the company has been somewhat affected by problems in the soda ash business. Last year, the import duty on soda ash was reduced from 38.5 per cent to 20 per cent while there was also an additional capacity created through Nirma, a one-time customer turned competitor.

And price increases by key global players namely the US, China and Kenya led to a rise in landed and domestic prices in India. But to counter import threats, TCL is looking at improving efficiencies and aims to become the lowest cost synthetic soda ash producer by next year. Salt has become an important product and TCL produces 3.5 lakh tonnes of vacuum-evaporated salt each year.

As market leader, the company decided to make this business an FMCG one and it has gone on to revamp its marketing team and structure to incorporate the strengths of and FMCG company. Its 29 distributors and 24 supply chain partners will help it achieve a greater and direct market penetration while increasing market efficiency. Tata Salt is set to become a global brand and will be first introduced to countries where the Indian population is high and then across the globe. Salt will play an increasingly important role in the turnover of TCL especially given its rising market share and product promotional activity.

Mr Mehan is certain the conversion from unbranded to branded salt will pick up pace. The distribution and logistics will always be a challenge for a bulk and low-priced product like salt, he says, but the company will continue to maintain its leadership position in this category. Mr Menon is also confident of the future with regard to Tata Salt and the company as a whole.

A specialised marketing team incorporating skills like brand management and advertising and with the relevant experience in marketing and distribution is in place to nurture the marketing and promotion of the salt business. "Though growth will be marginal during the current year, marketing and advertising will be critical inputs in our future operations to differentiate our brand and retain our leadership position in all core businesses of the company." The mood is positively upbeat at Tata Chemicals.